Welfare Reform: Facts and Figures

Welfare Reform: Facts and Figures

Summary

• The implementation of Universal Credit, the replacement of Disability Living Allowance and the evaluation of Employment Support Allowance, have made no progress in Great Britain.
• Evaluations of ESA and DLA claimants have resulted in no significant reduction in caseloads and have produced backlogs of claimants who have been denied their benefit entitlement.
• There is no reason to believe that the implementation of Welfare Reform in Northern Ireland will be any different.
• Welfare spending has increased in real terms but this has been the case for over 20 years, there has been no sudden surge.
• Welfare reform as proposed does not tackle any of the underlying structural changes in Welfare spending over the last number of years
• Housing Benefit and Tax credits have seen some of the largest increases
• Housing benefit increases can be directly linked to the neglect of social housing
• Tax credits increases are directly linked to the expansion of low pay
• Building more social housing and eradicating low pay are key to reduced overall welfare expenditure in the medium and long term.

How has welfare spending changed?

Spending on social security and welfare benefits in the UK is classified as Annually Managed Expenditure (AME). The majority of welfare spending is through the Department of Work and Pensions (DWP) which has an AME budget of about £170bn. The welfare budget has been increasing over the last number of years, but the rate of increase in spending has not changed in the last 25 years.

Chart 1 Total Real AME Department of Work & Pensions 1990-2013

Over the last number of years, much attention has been focused on “working –age” benefits, or those benefits received by people under 65. However, by far the biggest component of the welfare budget is the state pension, accounting of over a third of all expenditure. As the chart below show, Housing benefit and tax credits are the second and third largest components of expenditure.

Chart 2 Percentage of Total UK Welfare Budget by benefit

What welfare reform has been proposed?

The UK government has implemented a series of policy changes with regards to working-age benefits. The State pension and pension related benefits are not included in these policy changes. “Welfare reform” as set out by the UK government affects the following benefits

• Incapacity benefit (Employment Support Allowance)
• Tax credits
• Disability Living Allowance
• Child Benefit
• Housing benefit

The government has also imposed a maximum 1% annual increase in working age benefits, which when adjusted for inflation will result in real terms decreases. In contrast to Scotland and Wales, Northern Ireland has competency in social security meaning that policy decisions must be passed by the NI Assembly. The 1% uprating of benefits and changes to tax credits are implemented at UK level, the balance of the reforms must be carried out by the Northern Ireland Executive. The imposition of a 1% uprating to most working age benefits will also reduce a number of working age benefits.

The two biggest reforms that remain to be implemented by the NI Executive are changes to Disability Living Allowance (DLA) and Employment Support Allowance (ESA). There are significant changes to Housing Benefit as well

DLA

Disability Living Allowance is a benefit paid to people with disabilities to make up some of the costs associated with their disability. It is paid to people whether they are in employment or not. The reforms as proposed would change the name of DLA to the Personal Independence Payment, and cut it by 20%. Furthermore every claimant in receipt of this new benefit must be reassessed by the DWP or their contracted agents on their eligibility for the benefit. ATOS, the firm hired by DWP to carry out this function have so far created a backlog of over 250,000claimants. To be clear, many of these people have been waiting so long, their benefits have been stopped. DLA was designed to ensure the greater participation of people with disabilities in society.

Even in the circumstances in which ATOS has withdrawn eligibility for DLA, nearly half of these decisions were reversed. This reform has yet to show that it can make a significant saving for the taxpayer, whilst its implementation so far has resulted in disruption to the welfare system and financial hardship for many people with disability.

ESA

ESA is the new name for Incapacity benefit, which has actually already undergone quite successful reform already. Due to reforms in the late 1990’s both the caseload and the total expenditure on this benefit have decreased significantly. Perversely the current round of Welfare Reform has for the first time in over a decade increased total expenditure on this benefit.

Chart 3 Total Real Incapacity Benefit/Employment Support Allowance Expenditure 1990-2013

The Department for Work and pensions already estimates that the caseload for the new ESA benefit has already increased significantly since the beginning of 2013.According to the Director of the National Institute for Economic and Social Research “This recent reversal of historic trends is almost certainly the result of the administrative chaos surrounding the ATOS contract for the Work Capability Assessment”.[i]

Chart 4Estimates of Numbers in ESA/IB Client Group 2007-14

The Problem with Welfare Reform

The problem with Welfare reform as it is currently proposed is twofold. Firstly as described above the policy changes that have been implemented for ESA and DLA, have not saved any money for the taxpayer to date. The implementation of these reforms has been rushed and chaotic. No research was commissioned to examine the impacts of these reforms and it is also clear that neither the state nor any private contractors have the capacity to implement these reforms efficiently or effectively. The remainder of the problem concerns overall Welfare spending.

Chart 5 Total Real Expenditure on State Pension1991-2014

As noted earlier, nearly 40% of the welfare budget is made up of pensions and expenditure on the state pension has increased significantly over the last number of years. This has mainly been due to demographic pressures and there is no sign of this trend abating. Of the working age benefits that remain, housing benefit and tax credits as the second and third largest components of expenditure have seen some of the largest increases in the last number of years

Chart 6 Total Real Expenditure on Housing Benefit 1986-2013

Chart 7 Total Housing Benefit Claimants 1986-2013

The rise in housing benefit has not been due to increased numbers of people claiming the benefit; as shown above the amount of claimants has been falling for many years. The real cause of the increase has been increasing private rental costs due to increased house prices across the UK. The vast reductions in social housing mean that the state is dependent on the private rental sector, and has been forced to sky-high rents in areas like London.

Tax credits have also increased hugely over the last number of years, but this has been due to an increasing number of people qualifying for the benefit. There has been a trend of increasing low pay both at UK level and within Northern Ireland. Tax credits have allowed people on low wages to enjoy a marginally higher take home pay. In effect the state has been subsidising wages for people in low pay in order for them to be able to sustain their employment.

Chart 8 Total Real Expenditure on Tax Credits1991-2012

The Welfare budget has grown in recent years, but the reforms being proposed now ignore completely the causes of these increases. They do not take into account the structural changes that have taken place in our economy and how they affect the welfare system. Not only are the current set of reforms targeted at the wrong areas of expenditure, the experience to date in Great Britain show that they do not have the capacity to make any meaningful impact on reducing overall spending.

Real long-term reform should start with a new programme of social housing that would reduce state exposure to the over-inflated UK property market. Upward pressure on wages, particularly at the lower end which would reduce the role of tax credits as a subsidy for low wage employers. Both of these policies would achieve significant reduction on two of the largest areas of welfare expenditure without causing undue hardship to benefit recipients. The current set of reforms focus on the wrong elements of expenditure and will never achieve substantial reductions in welfare spending.

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